Go Global!

08May 2017

103

Economically, we have seen through a lot in the past two decades. We first experienced the recession in 2001 and then in the subprime meltdown in 2008, which further led to the global financial crisis. For many of us our chosen careers have not been a very smooth ride, while some of us moved on to second careers. This was largely because of the Global Crisis’s severe after-effects. This also explains why we are sceptical about investing our hard earned money in stock markets. The condition has slowly changed, but the question is- do we still consider international investment?

As for a global perspective, we are generally biased toward investing in companies domiciled in our home country, reason being our familiarity to our own country. This leads to missed opportunities in international stocks. Going global provides exposure to countries with advantages in several areas, including innovation, growing consumer demand, and also the natural resources. It also offers a hedge against a weakening home country currency.

But it is high time to revise our general mindset for two major reasons. Firstly, global stock returns have trumped all other asset classes in wealth creation. Secondly, our generation need to protect themselves from growing income inequality, the ever rising debt, and the economic impact of an aging population.

Investing internationally can be complex so before jumping into international investments and making a move, we must keep in mind these key points and consider both the sides of the coin.

Asset Protection – International investing makes this work by transferring assets to a legal entity outside our country through structures like trusts, foundations or corporations. This is highly beneficial to individuals that are frequent debtors. So no matter what happens to the individual in the future, a portion of their assets remain secure for future generations. This way international investments act like an insurance policy.

Diversification – Compared to the onshore investment regulations, most offshore jurisdictions encourage foreign investments by their flexible investment rules. The assets in your portfolio are easily diversified because of the easy access to international markets and exchanges. While international investing has higher stand-alone risk, the power of diversification across asset classes can potentially lower our overall portfolio risk. But, some countries have more unstable economic and political situations than the United States. If we are investing in opportunities in these countries, we might also experience more volatility in our portfolio than we are usually comfortable with. So we need to choose our investments appropriately.

Shielding our money– The exposure to offshore markets might act like a form of shield against global inflation. In addition to this, having an investment in a different currency and country other than where we have been living is leverage against a worsening economic condition that might happen to our home country.

Tax Savings– This is the strongest driving force for almost all of us. The tax savings deriving from the international investments is legal and are part of a well planed international investment structure.

Currency-Another important benefit of international investing is the exposure to varying currencies other than the US dollar, another way in which we can diversify our portfolios. One of the major factors affecting returns is how currencies behave in relation to other countries. And also because currencies tend to move in different directions, when the US dollar is declining, investments in international companies can help boost returns. On the other hand the reverse is also true, which is when the dollar goes up, international investments tend to underperform.

International markets are gaining more importance lately, and by investing solely in one country, we might just be passing over various growth opportunities. While there are higher risks involved with international investing, by adding it to our other investments, our overall portfolio risk could also decrease while experiencing potentially higher returns which makes it worth our time and hard earned money. Despite few pitfalls we need to start encouraging ourselves to invest in the global stock market.

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